SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
For the quarterly period ended September 30, 2003
For the transition period from to
Commission File No. 0-8788
DELTA NATURAL GAS COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Incorporated in the State 61-0458329
of Kentucky (I.R.S. Employer Identification No.)
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(Address of Principal Executive Offices) (Zip Code)
859-744-6171
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X . NO .
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Exchange Act).
YES__. NO X .
Common Shares, Par Value $1.00 Per Share
3,179,086 Shares Outstanding as of September 30, 2003.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Twelve Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
OPERATING REVENUES $ 10,137,842 $ 7,153,282 $ 71,364,822 $ 55,824,171
OPERATING EXPENSES
Purchased gas $ 6,487,414 $ 3,626,250 $ 43,852,834 $ 30,136,188
Operation and maintenance 2,528,076 2,444,638 10,740,989 9,847,719
Depreciation and depletion 1,065,992 1,042,502 4,264,697 4,146,135
Taxes other than income taxes 378,282 364,826 1,523,568 1,372,015
Income tax expense (539,800) (556,543) 2,470,100 2,168,357
Total operating expenses $ 9,919,964 $ 6,921,673 $ 62,852,188 $ 47,670,414
OPERATING INCOME 217,878 231,609 8,512,634 8,153,757
OTHER INCOME AND DEDUCTIONS, NET 10,880 11,273 47,251 22,739
INTEREST CHARGES 1,092,483 1,145,759 4,581,754 4,664,335
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE $ (863,725) $ (902,877) $ 3,978,131 $ 3,512,161
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE NET OF
INCOME TAXES OF $55,000 (NOTE 3) - (88,370) - (88,370)
NET INCOME (LOSS) $ (863,725) $ (991,247) $ 3,978,131 $ 3,423,791
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE BEFORE CUMULA-
TIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE $ (.27) $ (.36) $ 1.43 $ 1.39
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE - (.03) - (.03)
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (.27) $ (.39) $ 1.43 $ 1.36
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (BASIC AND
DILUTED) 3,173,446 2,537,691 2,789,565 2,523,041
DIVIDENDS DECLARED PER COMMON SHARE $ .295 $ .295 $ 1.180 $ 1.165
The accompanying notes to consolidated financial statements
are an integral part of these statements.
|
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS September 30, 2003 June 30, 2003 September 30, 2002
------------------ ------------- ------------------
GAS UTILITY PLANT, AT COST $ 166,660,124 $ 163,745,044 $ 158,780,385
Less-Accumulated provision
for depreciation (53,398,305) (52,383,975) (50,140,256)
------------------ --------------------- --------------------
Net gas plant $ 113,261,819 $ 111,361,069 $ 108,640,129
------------------- ------------------- ---------------------
CURRENT ASSETS
Cash and cash equivalents $ 200,446 $ 1,420,014 $ 287,667
Accounts receivable - net 3,856,554 4,566,777 2,649,453
Gas in storage, at average cost 11,910,631 5,090,440 8,662,990
Deferred gas costs 5,345,353 4,291,824 4,944,273
Materials and supplies, at first-in,
First-out cost 473,430 552,479 545,014
Prepayments 953,391 467,149 1,252,364
------------------- ------------------- ---------------------
Total current assets $ 22,739,805 $ 16,388,683 $ 18,341,761
------------------- ------------------- ---------------------
OTHER ASSETS
Cash surrender value of
Officers' life insurance $ 356,137 $ 356,137 $ 344,687
Note receivable from officer 128,000 134,000 152,000
Prepaid pension - - 2,092,344
Unamortized debt expense and other 4,274,249 4,333,900 3,146,475
------------------- ------------------- ---------------------
Total other assets $ 4,758,386 $ 4,824,037 $ 5,735,506
------------------- ------------------- ---------------------
Total assets $ 140,760,010 $ 132,573,789 $ 132,717,396
=================== =================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION (see Consolidated
Statements of Changes in
Shareholders' Equity)
Common shareholders' equity
Common shares $ 3,179,086 $ 3,166,940 $ 2,544,479
Premium on common shares 43,731,668 43,462,433 30,622,311
Capital stock expense (2,598,146) (2,598,146) (1,925,392)
Accumulated other comprehensive loss (2,050,636) (2,050,636) -
Retained earnings 2,110,947 3,912,006 1,507,095
------------------- ------------------- ---------------------
Total common shareholders' equity $ 44,372,919 $ 45,892,597 $ 32,748,493
Long-term debt 53,332,000 53,373,000 48,547,000
------------------- ------------------- ---------------------
Total capitalization $ 97,704,919 $ 99,265,597 $ 81,295,493
------------------- ------------------- ---------------------
CURRENT LIABILITIES
Notes payable $ 14,333,466 $ 1,031,099 $ 26,945,000
Current portion of long-term debt 1,650,000 1,650,000 1,750,000
Accounts payable 6,211,749 10,624,087 3,746,667
Accrued taxes 971,184 797,224 709,353
Refunds due customers - - 69,658
Customers' deposits 432,007 442,315 433,663
Accrued interest on debt 1,509,168 902,673 1,542,860
Accrued vacation 576,388 576,388 558,066
Other accrued liabilities 501,184 587,158 401,818
------------------- ------------------- ---------------------
Total current liabilities $ 26,185,146 $ 16,610,944 $ 36,157,085
------------------- ------------------- ---------------------
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 14,844,431 $ 14,844,431 $ 14,078,273
Investment tax credits 355,000 364,600 404,600
Regulatory liability 484,950 491,325 555,650
Minimum pension liability 898,164 716,780 -
Advances for construction and other 287,400 280,112 226,295
------------------- ------------------- ---------------------
Total deferred credits and other $ 16,869,945 $ 16,697,248 $ 15,264,818
------------------- ------------------- ---------------------
Commitments and Contingencies
Total liabilities and
shareholders' equity $ 140,760,010 $ 132,573,789 $ 132,717,396
=================== =================== =====================
|
Delta Natural Gas Company, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
Three Months Ended Twelve Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Common Shares
Balance, beginning of period $ 3,166,940 $ 2,530,079 $ 2,544,479 $ 2,507,962
Common stock offering - - 600,000 -
Dividend reinvestment and
stock purchase plan 7,640 9,672 28,789 30,817
Employee stock purchase plan
and other 4,506 4,728 5,818 5,700
----------- ----------- ----------- -----------
Balance, end of period $ 3,179,086 $ 2,544,479 $ 3,179,086 $ 2,544,479
=========== =========== =========== ===========
Premium on Common Shares
Balance, beginning of period $43,462,433 $30,330,330 $30,622,311 $29,884,362
Premium on issuance of
common shares
Common stock offering - - 12,360,000 -
Dividend reinvestment and
stock purchase plan 168,912 193,497 620,321 619,438
Employee stock purchase
plan and other 100,323 98,484 129,036 118,511
----------- ----------- ----------- -----------
Balance, end of period $43,731,668 $30,622,311 $43,731,668 $30,622,311
=========== =========== =========== ===========
Capital Stock Expense
Balance, beginning of period $(2,598,146) $(1,925,431) $(1,925,392) $(1,925,431)
Common stock offering - - (672,754) -
Dividend reinvestment and
stock purchase plan - 39 - 39
------------ ----------- ------------ -----------
Balance, end of period $(2,598,146) $(1,925,392) $(2,598,146) $(1,925,392)
=========== =========== =========== ===========
Accumulated Other Comprehensive Loss
Balance, beginning of period $(2,050,636) $ - $ - $ -
Minimum pension liability
adjustment, net of tax
benefit of $1,335,800 _ - _ - (2,050,636) _ -
----------- ----------- ----------- ----------
Balance, end of period $(2,050,636) $ - $(2,050,636) $ -
=========== ============ =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements
|
Delta Natural Gas Company, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (cont'd)
(UNAUDITED)
Three Months Ended Twelve Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Retained Earnings
Balance, beginning of period $ 3,912,006 $ 3,247,299 $ 1,507,095 $ 1,022,785
Net income (863,725) (991,247) 3,978,131 3,423,791
Cash dividends declared on
common shares (See
Consolidated Statements
of Income for rates) (937,334) (748,957) (3,374,279) (2,939,481)
----------- ----------- ----------- -----------
Balance, end of period $ 2,110,947 $ 1,507,095 $ 2,110,947 $ 1,507,095
=========== =========== =========== ===========
Common Shareholders' Equity
Balance, beginning of period $45,892,597 $34,182,277 $32,748,493 $31,489,678
Comprehensive income
Net income (loss) (863,725) (991,247) 3,978,131 3,423,791
Other comprehensive loss - - (2,050,636) -
---------- ----------- ----------- ---------
Comprehensive income
(loss) $ (863,725) $ (991,247) $ 1,927,495 $ 3,423,791
Issuance of common stock 281,381 306,420 13,071,210 774,505
Dividends on common stock (937,334) (748,957) (3,374,279) (2,939,481)
----------- ----------- ----------- -----------
Balance, end of period $44,372,919 $32,748,493 $44,372,919 $32,748,493
=========== =========== =========== ===========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
|
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Twelve Months Ended
September 30, September 30,
2003 2002 2003 2002
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (863,725) $ (991,247) $ 3,978,131 $ 3,423,791
Adjustments to reconcile net
income (loss) to net cash from
operating activities
Cumulative effect of a
change in accounting
principle - 88,370 - 88,370
Depreciation, depletion
and amortization 1,121,386 1,082,525 4,551,106 4,311,088
Deferred income taxes and
investment tax credits (15,975) (6,375) 1,981,658 1,110,916
Other - net 143,541 136,731 682,617 563,526
(Increase) decrease in assets (7,554,899) (2,995,112) (5,669,232) 1,466,218
Increase (decrease) in
liabilities (2,856,779) (1,705,121) 3,463,315 (227,468)
---------------------------------------------------- --------------------
Net cash provided by (used
in) operating activities $ 10,026,451) $ (4,390,229) $ 8,987,595 $ 10,736,441
---------------------------------------------------- --------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $ (3,798,531) $ (2,641,803) $ (9,433,565) $ (9,435,745)
---------------------------------------------------- --------------------
Net cash used in
investing activities $ (3,798,531) $ (2,641,803) $ (9,433,565) $ (9,435,745)
---------------------------------------------------- --------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common stock $ (937,334) $ (748,957) $ (3,374,279) $ (2,939,481)
Issuance of common stock, net 281,381 306,420 13,071,210 774,505
Issuance of long-term debt - - 20,000,000 -
Long-term debt issuance expense - - (819,408) -
Repayment of long-term debt (41,000) (53,000) (15,907,240) (1,309,000)
Issuance of notes payable 19,333,072 11,610,000 92,279,083 35,530,000
Repayment of notes payable (6,030,705) (4,020,000) (104,890,617) (33,715,000)
---------------------------------------------------- --------------------
Net cash provided by (used
in) financing activities $ 12,605,414 $ 7,094,463 $ 358,749 $ (1,658,976)
---------------------------------------------------- --------------------
NET INCREASE (DECREASE)IN
CASH AND CASH EQUIVALENTS $ (1,219,568) $ 62,431 $ (87,221) $ (358,280)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,420,014 225,236 287,667 645,947
---------------------------------------------------- --------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 200,446 $ 287,667 $ 200,446 $ 287,667
==================================================== ====================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 426,337 $ 725,565 $ 4,402,091 $ 4,528,537
Income taxes (net of refunds) $ 45,268 $ 301,900 $ 168,616 $ 1,384,766
The accompanying notes to consolidated financial statements
are an integral part of these statements.
|
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Delta Natural Gas Company, Inc. ("Delta" or "the Company") has three wholly-owned subsidiaries. Delta Resources, Inc. ("Delta Resources") buys gas and resells it to industrial or other large use customers on Delta's system. Delgasco, Inc. buys gas and resells it to Delta Resources and to customers not on Delta's system. Enpro, Inc. owns and operates production properties and undeveloped acreage. All of our subsidiaries are included in the consolidated financial statements. Intercompany balances and transactions have been eliminated.
(2) In our opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the three and twelve months ended September 30, 2003 and 2002, respectively, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended September 30, 2003 are not necessarily indicative of the results of operations to be expected for the full fiscal year. Our fiscal year end is June 30. Twelve month ended financial information is provided for additional information only. The accompanying financial statements are unaudited and should be read in conjunction with the financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended June 30, 2003. Certain reclassifications have been made to prior-period amounts to conform to the 2003 presentation.
(3) In June, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, entitled Accounting for Asset Retirement Obligations, and Delta adopted this statement effective July 1, 2002. Statement No. 143 addresses financial accounting for legal obligations associated with the retirement of long-lived assets. Upon adoption of this statement as of July 1, 2002, we recorded $178,000 of asset retirement obligations in the balance sheet primarily representing the current estimated fair value of our obligation to plug oil and gas wells at the time of abandonment. Of this amount, $47,000 was recorded as incremental cost of the underlying property, plant and equipment. The cumulative effect on earnings of adopting this new statement was a charge to earnings of approximately $88,000 (net of income taxes of $55,000), representing the cumulative amounts of depreciation and depletion expenses and changes in the asset retirement obligation due to the passage of time for historical accounting periods. The adoption of the new standard did not have a significant impact on income (loss) before cumulative effect of a change in accounting principle for the three and twelve months ended September 30, 2003 and 2002. Pro forma net income and earnings per share have not been presented for the twelve months ended September 30, 2002 because the pro forma application of Statement No. 143 to prior periods would result in pro forma net income and earnings per share not materially different from the actual amounts reported for those periods in the accompanying consolidated statements of income. We also have asset retirement obligations which have indeterminate settlement dates. These obligations, relating to gas wells and lines at our storage facility and compressor station sites, are not recorded until an estimated range of potential settlement dates is known, according to Statement No. 143. As allowed for ratemaking purposes and Statement of Financial Accounting Standards No. 71, entitled Accounting for the Effects of Certain Types of Regulation, we accrue costs of removal on long-lived assets through depreciation expense if we believe removal of the assets at the end of their useful life is likely. Approximately $700,000 of accrued cost of removal for obligations outside of the scope of Statement No. 143 is recorded in the accumulated provision for depreciation on the accompanying balance sheet as of September 30, 2003.
(4) In April, 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, entitled Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The changes in Statement No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. Statement No. 149 was effective July 1, 2003. There was no impact of implementation on our financial position and results of operations.
(5) In May, 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, entitled Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement No. 150 was developed in response to concerns relating to classification in the consolidated balance sheet of certain financial instruments that have characteristics of both liabilities and equity. Statement No. 150 was effective July 1, 2003. There was no impact of implementation on our financial position and results of operations.
(6) In September, 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants approved for final issuance the Statement of Position entitled Accounting for Certain Costs and Activities Related to Property, Plant and Equipment. The purpose of the Statement of Position is to create consistency in capitalization criteria. This Statement of Position is expected to be issued in the first quarter of calendar 2004 and will be effective July 1, 2005. We are currently analyzing the potential impact of this Statement of Position on our financial position and results of operations.
(7) Delta's note receivable from an officer on the accompanying balance sheet relates to a $160,000 loan made to Glenn R. Jennings, our President & Chief Executive Officer. The loan, secured by real estate owned by Jennings, bears interest at 6%, which Jennings pays monthly. Delta forgives $2,000 of the principal amount for each month of service Jennings completes. The outstanding balance on this loan was $128,000 as of September 30, 2003. In the event Jennings terminates his employment with Delta other than due to a change in control, or Jennings' employment is terminated for cause or as a result of his disability or death, the loan will become immediately due and payable.
(8) Because of the seasonal nature of our sales, we generate the smallest proportion of cash from operations during the warmer months, when sales volumes decrease considerably. Most construction activity takes place during these warmer months. As a result, we meet our cash needs for operations and construction during the warmer non-heating months partially through short-term borrowings, classified as notes payable in the accompanying balance sheets.
Our line of credit agreement and the indentures relating to all of our publicly held debentures contain defined "events of default" which, among other things, can make the obligation immediately due and payable. Of these, we consider the following covenants to be most significant:
o Dividend payments cannot be made unless consolidated shareholders' equity of the Company exceeds $25,800,000 (thus no retained earnings were restricted); and
o We may not assume any additional mortgage indebtedness in excess of $2,000,000 without effectively securing all Debentures equally to such additional indebtedness.
Furthermore, a default on the performance on any single obligation incurred in connection with our borrowings simultaneously creates an event of default with the line of credit and all of the Debentures. We were not in default on any of our line of credit or Debenture agreements during any period presented.
(9) We are not a party to any legal proceedings that are expected to have a materially adverse impact on our liquidity, financial condition or results of operations.
(10) During July, 2001, the Kentucky Public Service Commission required an independent audit of our gas procurement activities and the gas procurement activities of four other gas distribution companies as part of its investigation of increases in wholesale natural gas prices and their impacts on customers. The Kentucky Public Service Commission indicated that Kentucky distributors had generally developed sound planning and procurement procedures for meeting their customers' natural gas requirements and that these procedures had provided customers with reliable supplies of natural gas at reasonable costs. The Kentucky Public Service Commission noted the events of the prior year, including changes in natural gas wholesale markets. It required the auditors to evaluate distributors' gas planning and procurement strategies in light of the recent more volatile wholesale markets, with a primary focus on a balanced portfolio of gas supply that balances cost issues, price risk and reliability. The auditors were selected by the Kentucky Public Service Commission. Their final report, dated November 15, 2002, contains 16 procedural and reporting-related recommendations in the areas of gas supply planning, organization, staffing, controls, gas supply management, gas transportation, gas balancing, response to regulatory change and affiliate relations. The report also addresses several general areas for the five gas distribution companies involved in the audit, including Kentucky natural gas price issues, hedging, gas cost recovery mechanisms, budget billing, uncollectible accounts and forecasting. In January, 2003, we responded to the auditors with our comments on action plans they drafted relating to the recommendations. Our first status report on the action plans for the 16 recommendations was filed with the Kentucky Public Service Commission in September, 2003. We believe that implementation of the recommendations will not result in a significant impact on our financial position or results of operations.
(11) Our company has two segments: (i) a regulated natural gas distribution, transmission and storage segment, and (ii) a non-regulated segment which participates in related ventures, consisting of natural gas marketing and production. The regulated segment serves residential, commercial and industrial customers in the single geographic area of central and southeastern Kentucky. Virtually all of the revenue recorded under both segments come from the sale or transportation of natural gas. Price risk for the regulated business is mitigated through our Gas Cost Recovery Clause, approved quarterly by the Kentucky Public Service Commission. Price risk for the non-regulated business is mitigated by efforts to balance supply and demand. However, there are greater risks in the non-regulated segment because of the practical limitations on the ability to perfectly predict our demand.
The segments follow the same accounting policies as described in the Summary of Significant Accounting Policies in Note 1 of the Notes to Consolidated Financial Statements which are included in our Annual Report on Form 10-K for the year ended June 30, 2003. Intersegment revenues and expenses consist of intercompany revenues and expenses from intercompany gas transportation services. Intersegment transportation revenue and expense is recorded at our tariff rates. Operating expenses, taxes and interest are allocated to the non-regulated segment.
Segment information is shown below for the periods:
Three Months Ended Twelve Months Ended
September 30, September 30,
2003 2002 2003 2002
($000) ---- ---- ---- ----
Revenues
Regulated
External customers 4,475 3,466 48,777 40,303
Intersegment 731 709 3,152 3,036
----- ----- ------ ------
Total regulated 5,206 4,175 51,929 43,339
----- ----- ------ ------
Non-regulated
External customers 5,663 3,687 22,588 15,521
Intersegment - - - 694
Total non-regulated 5,663 3,687 22,588 16,215
Eliminations for intersegment (731) (709) (3,152) (3,730)
---- ---- ------ ------
Total operating revenue 10,138 7,153 71,365 55,824
====== ===== ====== ======
Net Income (Loss)
Regulated (1,021) (1,114) 2,441 2,614
Non-regulated 157 123 1,537 810
--- --- ----- ---
Total net income (loss) (864) (991) 3,978 3,424
==== ==== ===== =====
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Because of the seasonal nature of our sales, we generate the smallest proportion of cash from operations during the warmer months, when sales volumes decrease considerably. Most construction activity takes place during these warmer months. As a result, we meet our cash needs for operations and construction during the warmer non-heating months partially through short-term borrowings.
Our capital expenditures for fiscal 2004 are expected to be $8.4 million. These capital expenditures are being made for system extensions and for the replacement and improvement of existing transmission, distribution, gathering, storage and general facilities.
We generate internally only a portion of the cash necessary for our capital expenditure requirements. We finance the balance of our capital expenditures on an interim basis through a short-term line of bank credit. Our current available line of credit is $40,000,000, of which $14,333,000 was borrowed at September 30, 2003, classified as notes payable in the accompanying balance sheets. The line of credit is with Branch Banking and Trust Company and extends through October 31, 2004.
We periodically repay our short-term borrowings under our line of credit by using the net proceeds from the sale of long-term debt and equity securities. For example, during February, 2003, we issued $20,000,000 aggregate principal amount of 7.00% Debentures due 2023. The net proceeds of the offering were $19,181,000. We used the net proceeds to redeem $14,806,000 aggregate principal amount of our 8.30% Debentures due 2026 and to pay down our short-term notes payable. During May, 2003, we used the net proceeds of $12,493,000 from our sale of 600,000 shares of common stock to pay down our short-term notes payable. We will use additional borrowings under our existing line of credit to help meet working capital and capital expenditure needs as required.
Below, we summarize our primary cash flows during the three and twelve
month periods ending September 30, 2003 and 2002:
($000) Three Months Twelve Months Ended
Ended September 30,
September 30,
2003 2002 2003 2002
---- ---- ---- ----
Provided by (used in) operating activities (10,026) (4,390) 8,988 10,736
Used in investing activities (3,799) (2,642) (9,434) (9,435)
Provided by (used in) financing activities 12,605 7,094 359 (1,659)
------- ------- ------ -------
Increase (decrease) in cash
and cash equivalents (1,220) 62 (87) (358)
======= ======= ====== =======
|
For the three months ended September 30, 2003, we had a $1,220,000 decrease in cash and cash equivalents compared to a $62,000 increase in cash and cash equivalents for the three months ended September 30, 2002. This additional $1,282,000 of cash used resulted primarily from increased cash needs of $6,537,000 for gas stored underground, gas accounts payable and deferred gas costs due to the increase of gas prices between periods. In addition, we used $1,157,000 more cash for capital expenditures. These increased cash needs were partially met with $5,712,000 of increased borrowings on our short-term line of bank credit.
For the twelve months ended September 30, 2003, we had a $87,000 decrease in cash and cash equivalents compared to a $358,000 decrease in cash and cash equivalents for the twelve months ended September 30, 2002. This additional $271,000 of cash provided resulted from increased cash needs of $2,915,000 for gas stored underground, gas accounts payable and deferred gas costs due to the increase of gas prices between periods offset by $1,167,000 of additional cash provided by various operating activities and $2,018,000 of additional cash provided by the various financing activities throughout the year, including the issuance of long-term debt and common equity and the repayment of short-term debt.
Cash provided by operating activities primarily consists of net income adjusted for non-cash items, including depreciation, depletion, amortization, deferred income taxes and changes in working capital. We expect that internally generated cash, coupled with short-term borrowings, will be sufficient to satisfy our operating and normal capital expenditure requirements and to pay dividends for the foreseeable future.
Our ability to sustain acceptable earnings levels, finance capital expenditures and pay dividends is contingent on the adequate and timely adjustment of the sales prices of our retail gas we sell to and transport for our customers. The Kentucky Public Service Commission sets these prices and we continuously monitor our need to file rate requests with the Kentucky Public Service Commission for a general rate increase for our retail gas and transportation services.
RESULTS OF OPERATIONS
For meaningful analysis of our revenue and expense variations, the variation amounts and percentages presented below for regulated and non-regulated revenues and expenses include intersegment transactions. These intersegment revenues and expenses, whose variations are also disclosed in the following tables, are eliminated in the consolidated statements of income.
Operating Revenues
In the following table we set forth variations in our revenues for the three and twelve months ended September 30, 2003 compared with the same periods in the preceding year:
($000) 2003 Compared to 2002
---------------------
Three Months Twelve Months
Ended Ended
September 30, September 30,
Increase (decrease) in our
regulated revenues
Gas rates 748 3,969
Weather normalization adjustment - (1,619)
Sales volumes 113 5,785
On-system transportation 41 91
Off-system transportation 124 355
Other 5 9
------- -------
Total 1,031 8,590
------- -------
Increase (decrease) in our non-
regulated revenues
Gas rates 1,706 6,043
Sales volumes 268 324
Other 2 6
------- --------
Total 1,976 6,373
------- --------
Decrease (increase) in our intersegment revenues
(22) 578
------- --------
Increase in our consolidated revenues 2,985 15,541
======= ========
================================================================================
Percentage increase in our regulated
volumes
Gas sales 3.9 15.6
On-system transportation 7.0 8.7
Off-system transportation 30.4 25.5
Percentage increase (decrease) in our
non-regulated gas sales volumes 7.3 2.0
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Heating degree days billed were 106% of normal thirty year average temperatures for the twelve months ended September 30, 2003 as compared with 89% of normal temperatures in 2002. A "heating degree day" results from a day during which the average of the high and low temperature is at least one degree less than 65 degrees Fahrenheit.
The increase in operating revenues for the three months ended September 30, 2003, of $2,985,000 was primarily due to a 62.3% increase in gas costs reflected in higher sales prices.
The increase in operating revenues for the twelve months ended September 30, 2003 of $15,541,000 was primarily due to a 30.2% increase in gas costs reflected in higher sales prices as well as a 15.6% increase in our regulated volumes because of the significantly colder weather in 2003. These increases, however, were offset to some extent because unusually cold temperatures resulted in the reduction of our rates through the normal operation of our weather normalization adjustment tariff.
Operating Expenses
In the following table we set forth variations in our purchased gas expense for the three and twelve months ended September 30, 2003 compared with the same periods in the preceding year:
2003 Compared to 2002
Three Months Ended Twelve Months Ended
September 30, September 30,
Increase in regulated gas expense
Gas rates 794 4,826
Purchase volumes 41 3,055
------ -------
Total 835 7,881
------ -------
Increase in non-regulated gas expense
Gas rates 1,720 4,902
Purchase volumes 306 240
Transportation expense 22 116
------ -------
Total 2,048 5,258
------ -------
Decrease (increase) in intersegment gas expense
(22) 578
------ -------
Increase in consolidated
gas expense 2,861 13,717
====== =======
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The increase in purchased gas expense for the three months ended September 30, 2003, of $2,861,000 was primarily due to a 62.3% increase in gas costs because of higher prices.
The increase in purchased gas expense for the twelve months ended September 30, 2003 of $13,717,000 was primarily due to a 30.2% increase in gas costs because of higher prices as well as a 15.6% increase in our regulated volumes.
The increase in taxes other than income taxes for the twelve months ended September 30, 2003 of $152,000 was primarily due to increased property taxes.
The increase in income taxes for the twelve months ending September 30, 2003 of $302,000 was due to the increase in net income.
Basic and Diluted Earnings Per Common Share
For the three and twelve months ended September 30, 2003 and 2002, our basic earnings per common share changed as a result of changes in net income and an increase in the number of our common shares outstanding. We increased our number of common shares outstanding as a result of shares issued through our Dividend Reinvestment and Stock Purchase Plan and Employee Stock Purchase Plan and our May, 2003 Common Stock Offering of 600,000 shares.
We have no potentially dilutive securities. As a result, our basic earnings per common share and our diluted earnings per common share are the same.
New Accounting Pronouncements
In June, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, entitled Accounting for Asset Retirement Obligations, and Delta adopted this statement effective July 1, 2002. Statement No. 143 addresses financial accounting for legal obligations associated with the retirement of long-lived assets. Upon adoption of this statement as of July 1, 2002, we recorded $178,000 of asset retirement obligations in the balance sheet primarily representing the current estimated fair value of our obligation to plug oil and gas wells at the time of abandonment. Of this amount, $47,000 was recorded as incremental cost of the underlying property, plant and equipment. The cumulative effect on earnings of adopting this new statement was a charge to earnings of approximately $88,000 (net of income taxes of $55,000), representing the cumulative amounts of depreciation and depletion expenses and change in the asset retirement obligation due to the passage of time for historical accounting periods. The adoption of the new standard did not have a significant impact on income (loss) before cumulative effect of a change in accounting principle for the three and twelve months ended September 30, 2003 and 2002. Pro forma net income and earnings per share have not been presented for the twelve months ended September 30, 2002 because the pro forma application of Statement No. 143 to prior periods would result in pro forma net income and earnings per share not materially different from the actual amounts reported for those periods in the accompanying consolidated statements of income. We also have asset retirement obligations which have indeterminate settlement dates. These obligations, relating to gas wells and lines at our storage facility and compressor station sites, are not recorded until an estimated range of potential settlement dates is known, according to Statement No. 143. As allowed for ratemaking purposes and Statement of Financial Accounting Standards No. 71, entitled Accounting for the Effects of Certain Types of Regulation, we accrue costs of removal on long-lived assets through depreciation expense if we believe removal of the assets at the end of their useful life is likely. Approximately $700,000 of accrued cost of removal for obligations outside of the scope of Statement No. 143 is recorded in the accumulated provision for depreciation on the accompanying balance sheet as of September 30, 2003.
In April, 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, entitled Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The changes in Statement No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. Statement No. 149 was effective July 1, 2003. There was no impact of implementation on our financial position and results of operations.
In May, 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, entitled Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement No. 150 was developed in response to concerns relating to classification in the consolidated balance sheet of certain financial instruments that have characteristics of both liabilities and equity. Statement No. 150 was effective July 1, 2003. There was no impact of implementation on our financial position and results of operations.
In September, 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants approved for final issuance the Statement of Position entitled Accounting for Certain Costs and Activities Related to Property, Plant and Equipment. The purpose of the Statement of Position is to create consistency in capitalization criteria. This Statement of Position is expected to be issued in the first quarter of calendar 2004 and will be effective July 1, 2005. We are currently analyzing the potential impact of this Statement of Position on our financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We purchase our gas supply through a combination of spot market gas purchases and forward gas purchases. The price of spot market gas is based on the market price at the time of delivery. The price we pay for our natural gas supply acquired under our forward gas purchase contracts, however, is fixed prior to the delivery of the gas. Additionally, we inject some of our gas purchases into gas storage facilities in the non-heating months and withdraw this gas from storage for delivery to customers during the heating season. We have minimal price risk resulting from these forward gas purchase and storage arrangements because we are permitted to pass these gas costs on to our regulated customers through the gas cost recovery rate mechanism.
As part of our unregulated transportation activities, we periodically contract with our transportation customers to acquire gas that will be transported to these customers. At the time we make a sales commitment to one of these customers, we attempt to cover this position immediately with gas purchase commitments that match the terms of the related sales contract in order to minimize our price volatility risk.
None of our gas contracts are accounted for using the fair value method of accounting. While some of our gas purchase contracts meet the definition of a derivative, we have designated these contracts as "normal purchases" under Statement of Financial Accounting Standards No. 133 entitled Accounting for Derivatives Instruments and Hedging Activities.
We are exposed to risk resulting from changes in interest rates on our variable rate notes payable. The interest rate on our current short-term line of credit with Branch Banking and Trust Company is benchmarked to the monthly London Interbank Offered Rate. The balance on our short-term line of credit was $14,333,000 on September 30, 2003 and $26,945,000 on September 30, 2002. Based on the amount of our outstanding short-term line of credit on September 30, 2003, a one percent (one hundred basis points) increase in our average interest rates would result in a decrease in our annual pre-tax net income of $143,000.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Within 90 days before filing this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the Securities and Exchange Commission. Glenn R. Jennings, our President and Chief Executive Officer, and John F. Hall, our Vice President-Finance, Secretary and Treasurer, reviewed and participated in this evaluation. Based on this evaluation, Mr. Jennings and Mr. Hall concluded that, as of the date of their evaluation, our disclosure controls were effective.
(b) Internal Controls. Since the date of the evaluation described above, there have not been any significant changes in our internal accounting controls or in other factors that could significantly affect those controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The detailed information required by Item 1 has been disclosed in previous reports filed with the Commission and is unchanged from the information as presented in Item 3 of Form 10-K for the period ending June 30, 2003.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10(a)Modification Agreement extending to October 31, 2004 the Promissory Note and Loan Agreement dated October 31, 2002 between the Registrant and Branch Banking and Trust Company.
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2 Certificate of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by the
Registrant during the quarter for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DELTA NATURAL GAS COMPANY, INC.
(Registrant)
/s/Glenn R. Jennings
-------------------------------------
DATE: November 11, 2003 Glenn R. Jennings
President and Chief Executive Officer
(Duly Authorized Officer)
/s/John F. Hall
John F. Hall
Vice President - Finance, Secretary
and Treasurer
(Principal Financial Officer)
/s/John B. Brown
-------------------------------------
John B. Brown
Controller
(Principal Accounting Officer)
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EXHIBIT 10(a)
Address 3617 LEXINGTON RD. 9580219605 WINCHESTER. KY 40391-0000 BB&T Customer Number
MODIFICATION AGREEMENT
Note Number
$40.000.000.00 10/31/2002 $ 40,000.000.00 10/31/2003 Original Amount of Note Original Date Modification Amount Modification Date
This Modification Agreement (hereinafter "Agreement") is made and entered into this 31st day of October. 2003 by and between DELTA NATURAL GAS COMPANY. INC. , maker(s), maker(s), endorser(s), or other obligor(s) on the Promissory Note (as defined below), hereinafter also referred to as "Borrower"; and Branch Banking and Trust Company, a North Carolina banking corporation, hereinafter referred to as "Bank".
Witnesseth: Whereas, Borrower has executed and delivered to Bank the following documents (collectively, the "Loan Documents"):
(a) a Promissory Note payable to Bank, which Promissory Note includes the original Promissory Note and Addendum dated as of October 31, 2002, in the face principal amount of $40,000,000.00 and all renewals, extensions and modifications thereof, collectively "Promissory Note", said Promissory Note being more particularly identified by description of the original note above;
(b) a Loan Agreement dated October 31, 2002 (hereinafter "Loan Agreement"); and Borrower and Bank agree that said Loan Documents be modified only to the limited extent as is hereinafter set forth; that all other terms, conditions, and covenants of the Loan Documents remain in full force and effect, and that all other obligations and covenants of Borrower, except as herein modified, shall remain in full force and effect, and binding between Borrower and Bank;
NOW THEREFORE, in mutual consideration of the premises, the sum of Ten Dollars ($10) and other good and valuable consideration, each to the other parties paid, the parties hereto agree that
1. The Promissory Note is amended as hereinafter described:
INTEREST RATE, PRINCIPAL AND INTEREST PAYMENT TERM MODIFICATIONS (To the extent
no change is made, existing terms continue.
Sections not completed are deleted )
a. Principal and Interest are payable as follows:
|X| Principal (plus any accrued interest not otherwise scheduled herein) is due in full at maturity on 10/31/2004
|X| Accrued interest is payable Monthly continuing on November 30. 2003 and on the same day of each calendar period thereafter, with one final payment of all remaining interest due on October 31, 2004
b. The eighth grammatical paragraph on page 1 of the Promissory Note is hereby amended and restated so as to read in its entirety as follows: 'This note ('Note') Is given by the Borrower in connection with a Loan Agreement between the Borrower and the Bank dated October 31, 2002 (as amended by that certain Modification Agreement between the Bank and the Borrower dated October 31, 2003) all as executed by the Borrower."
2. The Loan Agreement is amended as hereinafter described:
a. In the paragraph on page 1 of the Loan Agreement, titled "Line of Credit", the date "October 31, 2003" is hereby deleted and the date "October 31, 2004" is inserted in lieu thereof.
b. Section 6.03 of the Loan Agreement is hereby amended and restated so as to read in its entirety as follows: "Issuance of Stock., in any calendar year during the term hereof exclusive of shares of stock (i) issued in calendar year 2003, (ii) pursuant to the Borrower's Dividend Reinvestment Program adopted on November 16, 2000 (under which 75,445 shares remain available), and (iii) pursuant to the Borrower's Employee Stock Purchase Plan (which is approved through June 30, 2004), issue any of its stock to the public or in an exempt transaction whereby such issuances in the aggregate exceed five percent (5%) of the Borrower's currently authorized and outstanding shares of common stock."
c. The definition of "Committed Line Amount" in Section 7.01 of the Loan Agreement is hereby amended and restated so as to read in its entirety as follows: "'Committed Line Amount' shall mean the amount of Forty Million Dollars ($40,000,000.00)."
d. Section 7.16 is hereby deleted in its entirety.
If the Promissory Note and Loan Agreement being modified by this Agreement is signed by more than one person or entity, the modified Promissory Note shall be the joint and several obligation of all signers and the property and liability of each and all of them. It is expressly understood and agreed that this Agreement is a modification only and not a novation. The original obligation of the Borrower as evidenced by the Promissory Note above described is not extinguished hereby. It Is also understood and agreed that except for the modification(s) contained herein said Promissory Note, and any other Loan Documents or Agreements evidencing, securing or relating to the Promissory Note and all singular terms and conditions thereof, shall be and remain in full force and effect. This Agreement shall not release or affect the liability of any co-makers, obligors, endorsers or guarantors of said Promissory Note. Borrower and Debtors)/Grantor(s), if any, jointly and severally consent to the terms of this Agreement, waive any objection thereto, affirm any and all obligations to Bank and certify that there are no defenses or offsets against said obligations or the Bank, including without limitation the Promissory Note. Bank expressly reserves all rights as to any party with right of recourse on the aforesaid Promissory Note.
Borrower agrees that the only interest charge is the interest actually stated in the Promissory Note, and that any loan or origination fee shall be deemed charges rather than interest, which charges are fully earned and non-refundable. It is further agreed chat any late charges are not a charge for the use of money but are imposed to compensate Bank for some of the administrative services, costs and losses associated with any delinquency or default under the Promissory Note, and said charges shall be fully earned and non-refundable when accrued. All other charges imposed by Bank upon Borrower in connection with the Promissory Note and the loan including, without limitation, any commitment fees, loan fees, facility fees, origination fees, discount points, default and late charges, prepayment fees, statutory attorneys' fees and reimbursements for costs and expenses paid by Bank to third parties or for damages incurred by Bank are and shall be deemed to be charges made to compensate Bank for underwriting and administrative services and costs, other services, and costs or losses incurred and to be incurred by Bank in connection with the Promissory Note and the loan and shall under no circumstances be deemed to be charges for the use of money. All such charges shall be fully earned and non-refundable when due.
The Bank may, at its option, charge any fees for the modification, renewal, extension, or amendment of any of the terms of the Promissory Note(s) as permitted by applicable law.
In the words "Prime Rate", "Bank Prime Rate", "BB&T Prime Rate", "Bank's Prime Rate" or "BB&T's Prime Rate" are used in this Agreement, they shall refer to the rate announced by the Bank from time to time as its Prime Rate. The Bank makes loans both above and below the Prime Rate and uses indexes other than the Prime Rate. Prime Rate is the name given a rate index used by the Bank and does not in itself constitute a representation of any preferred rate or treatment.
Unless otherwise provided herein, it is expressly understood and agreed by and between Borrower. Debtors)/Grantor(s) and Bank that any and all collateral (including but not limited to real property, personal property, fixtures, inventory, accounts, instruments, general intangibles, documents, chattel
1373KY (0304)
[GRAPHIC OMITTED] paper, and equipment) given as security to insure faithful performance by Borrower and any other third party of any and all obligations to Bank, however created, whether now existing or hereafter arising, shall remain as security for the Promissory Note as modified hereby.
It is understood and agreed that if Bank has released collateral herein, it shall not be required or obligated to take any further steps to release said collateral from any lien or security interest unless Bank determines, in its sole discretion, that it may do so without consequence to its secured position and relative priority in other collateral; and unless Borrower bears the reasonable cost of such action. No delay or omission on the part of the Bank in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Bank, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same, or of any other right on any further occasion. Each of the parties signing this Agreement regardless of the time, order or place of signing waives presentment, demand, protest, and notices of every kind, and assents to any one or more extensions or postponements of the time of payment or any other indulgences, to any substitutions, exchanges or releases of collateral if at any time there is available to the Bank collateral for the Promissory Note, as amended, and to the additions or releases of any other parties or persons primarily or secondarily liable. Whenever possible the provisions of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is prohibited by or invalid under such law, such provisions shall be ineffective to the extent of any such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All rights and obligations arising hereunder shall be governed by and construed in accordance with the laws of the same state which governs the interpretation and enforcement of the Promissory Note.
From and after any event of default under this Agreement, the Promissory Note, or any related deed of trust, security agreement or loan agreement, interest shall accrue on the sum of the principal balance and accrued interest then outstanding at the variable rate equal to the Bank's Prime Rate plus 5% per annum ("Default Rate"), provided that such rate shall not exceed at any time the highest rate of interest permitted by the laws of the Commonwealth of Kentucky; and further that such rate shall apply after judgement. In the event of any default, the then remaining unpaid principal amount and accrued but unpaid interest then outstanding shall bear interest at the Default Rate until such principal and interest have been paid in full. Bank shall not be obligated to accept any check, money order, or other payment instrument marked "payment in full" on any disputed amount due hereunder, and Bank expressly reserves the right to reject all such payment instruments. Borrower agrees that tender of its check or other payment instrument so marked will not satisfy or discharge its obligation under this Note, disputed or otherwise, even if such check or payment instrument is inadvertently processed by Bank unless in fact such payment is in fact sufficient to pay the amount due hereunder.
DELTA NATURAL GAS COMPANY, INC.
By /s/Glenn R. Jennings
Glenn R. Jennings, President
BRANCH BANKING AND TRUST COMPANY
By /s/William W. James
William W. James, Senior Vice President
ACCOUNT#/NOTE#
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9580210605 00003
LOULibrary/298427.1
1373KY (0304)
EXHIBIT 31.1
CERTIFICATIONS
I, Glenn R. Jennings, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Natural Gas Company, Inc., the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/Glenn R. Jennings
Glenn R. Jennings
President & Chief Executive Officer
Date: November 11, 2003
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EXHIBIT 31.2
CERTIFICATIONS
I, John F. Hall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Natural Gas Company, Inc., the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/John F. Hall
John F. Hall
Vice President - Finance,
Secretary & Treasurer
Date: November 11, 2003
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EXHIBIT 32.1
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Delta Natural Gas Company, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Glenn R. Jennings, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Glenn R. Jennings
Glenn R. Jennings
President & Chief Executive Officer
November 11, 2003
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EXHIBIT 32.2
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Delta Natural Gas Company, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John F. Hall, Vice-President - Finance, Secretary and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(3) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(4) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/John F. Hall
John F. Hall
Vice-President - Finance,
Secretary & Treasurer
November 11, 2003
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